Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971493
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 22, Problem 8PA
(a):
To determine
Total surplus.
(b):
To determine
The efficient outcome.
(c):
To determine
Preference of the person.
(d):
To determine
Majority preference.
(e):
To determine
Availability of different options.
(f):
To determine
Majority rule.
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ECONOMICS
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This problem set explores what happens to pricing when we add network effects, which are a specific form of positive externality.
You’ve invented a 3D fax machine. This cool technology is almost like a Star Trek teleporter. You can scan an object at one machine, which creates an exact copy at another 3D fax machine. It is so valuable that as more people use it, it becomes more valuable, and the price any given user is willing to pay increases in turn.
Consider a scenario in which there are 12 possible users, who each value the fax machine at i*n, where i is the index of that user (from 1 to 12), and n is the number of other purchasing users. So, if no one buys the 3D fax machine, everyone values it at 0. However, as soon as one person buys the device, then the 12 possible users begin to value the product at 1, 2, … 12, respectively. If 2 people purchase, the 12 possible users’ valuations increase to 2, 4, … 24, and so on. Because…
A firm is considering building a two-way network that links 12 users. The cost of building the network is $10,000. a. How many potential connection services does this network provide? b. If each user is willing to pay $150 to connect to the network, will the firm profit by building the network? c. If each user is willing to pay an average of $12 for each potential connection service provided by the network, will the firm profit by building the network? d. What happens to the number of potential connection services if one additional user joins the network?
Three roommates, Alan, Billy and Casey, are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Table below indicates their willingness to pay for each movie:
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2nd movie
3rd movie
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$0
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$0
Billy
$30
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$10
$0
$0
Casey
$50
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$30
$20
$10
Explain why some people believe that the showing of a movie within the dorm room is a public good.
Chapter 22 Solutions
Principles of Microeconomics (MindTap Course List)
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